UK housebuilder Crest Nicholson slides into loss amid property market woes | Construction industry

Construction industry

Company issues profit warning and slashes dividend, saying buyers are waiting for interest rate cuts

Thu 13 Jun 2024 07.09 EDT

The UK housebuilder Crest Nicholson has tumbled into the red and slashed its dividend, highlighting the struggles in the UK property sector.

Warning for the fourth time in a year that profits would be below expectations, the FTSE 250 company said it continued to be buffeted by volatile mortgage rates and slowing demand in the housing market.

Crest reported a pre-tax loss of £30.9m in the six months to the end of April, down from a £28.4m in the same period a year earlier.

Its number of home completions fell 12% in six months when compared with a year earlier. It now expects to make an adjusted pre-tax profit of £22m-£29m for the full financial year, below analyst forecasts of almost £39m. Shares fell 8% in early trading on Thursday.

The housebuilder said momentum had “softened slightly” since April, reflecting market expectations that interest rate cuts will come much later in the year than previously expected. It said the general election was also “creating some short-term uncertainty”.

Crest is taking a one-off charge of £31.4m – almost double its previous estimate of £15m – after completing a review of costs to fix building defects at four of its sites. It cut its interim dividend by more than 80% to 1p.

The housebuilder said that the economic uncertainty that followed the mini-budget in September 2022 had continued to affect the housing market.

“While mortgage rates have been stable in the period, there has been little impetus for consumers to enter the market, with many consumers waiting for a reduction in rates,” the company said, adding that planning matters also continued to take longer to progress.

The housebuilder’s results are the latest indication that confidence in the UK’s housing market is beginning to falter as markets increasingly bet interest rate cuts will come later in the year.

City traders expect the Bank of England will hold off reducing the cost of borrowing from 5.25% when policymakers meet next week. Earlier this year, financial markets expected four quarter-point rate cuts but now expect two at the most, with the first not until late summer or early autumn.

A study from the Royal Institution of Chartered Surveyors (Rics) published on Thursday found that a net balance of 8% of property professionals said homebuyer demand fell rather than rose in May, marking the weakest reading since November 2023. Buyer demand was weakest in the south-east and south-west of England, the report said.

However demand continues to outstrip supply in the private rented sector, leaving tenants facing rises in the cost of living and falling affordability levels, Rics said. A net balance of 35% of professionals said tenant demand rose rather than fell.

On Thursday, Virgin Money reported strong profit growth bolstered by the effect of higher interest rates. The lender, which is the subject of a proposed £2.9bn takeover by the building society Nationwide, reported a rise in pre-tax profit to £279m in the six months to the end of March, up from £236ma year earlier. However, it said that in its mortgages division, balances reduced by 2% in the first half to £56.6bn, reflecting a subdued market for completions.